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Wall Street Rally Loses Steam, Nasdaq Flirts With Red

U.S. stocks trimmed their bullish kickoff to the fourth quarter Monday afternoon as a stronger-than-expected manufacturing report kept the Dow up about 100 points but the Nasdaq Composite flatlined after new comments from Fed chief Ben Bernanke.

Today’s Markets

As of 3:05 p.m. ET, the Dow Jones Industrial Average rose 102.67 points, or 0.76%, to 13540.07, the S&P 500 gained 6.56 points, or 0.46%, to 1447.25 and the Nasdaq Composite added 1.72 points, or 0.06%, to 3118.03. The FOX 50 advanced 5.31 points, or 0.49%, to 1094.21.

All three major indexes had been even higher earlier in the day amid enthusiasm for the surprise manufacturing report as well as strong gains overseas, especially in Europe.

The mixed picture comes after Wall Street put the finishing touches of a surprisingly solid third quarter that has left the markets within striking distance of all-time highs despite lingering economic headwinds.

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“We had a great third quarter. We definitely have some positive momentum still very much within a very constructive tone in the market,” said Peter Kenny, managing director at Knight Capital Group (KCG).

Apple (AAPL) drove the declines in the Nasdaq as the tech behemoth declined another 1%. Since disclosing disappointing iPhone sales figures last week Apple’s shares have retreated almost 6%, significantly underperforming the broader markets.

Stocks hit session lows, with the Nasdaq Composite briefly turning negative, after a speech from Bernanke in Indiana in which the central banker defended the Fed's aggressive policies.

"The case seemed clear to most of my colleagues that we could do more to assist economic growth and the job market without compromising our goal of price stability," Bernanke said.

Bernanke said he doesn't anticipate the U.S. sinking into a recession, but warned growth remains too slow to significantly cut down on unemployment.

Meanwhile, the Dow posted a 150-point gain after the Institute for Supply Management said manufacturing activity in the U.S. expanded in September for the first time since May. ISM's manufacturing PMI hit 51.5 last month, topping estimates for 49.7 and besting August's 49.6 reading.

Following the stronger-than-expected ISM data economically-sensitive stocks like General Electric (GE) and UPS (UPS) extended their gains.

"Today’s number is unquestionably a positive and its not surprising to see the equity market react accordingly," Dan Greenhaus, chief global strategist at BTIG, wrote in a note.

On the other hand, Markit said its final manufacturing reading for September slipped to 51.1 from 51.5 in August. That marked the index's lowest reading in three years. Also, the Commerce Department said U.S. construction spending dipped 0.6% in August, compared with forecasts from economists for a gain of 0.4%.

Wall Street sentiment was lifted early in the session by impressive gains in Europe where the Euro Stoxx 50 rallied close to 2% despite a new report revealing the eurozone's unemployment rate climbed to a record of 11.4% in August.

Speculation also continues to mount over whether and when Spain's government will officially request a formal bailout. Stress tests released late last week showed Spain's banking system would have a 59 billion euro ($76 billion) capital shortfall in a stressed scenario and seven banks have capital needs.

Fueled largely by the Federal Reserve's quantitative easing programs, equities generated solid returns in the third quarter. The blue chips advanced 4.32%, capped off by their strongest monthly performance since June. The S&P 500 is in the midst of a four-month winning streak, picking up nearly 10% over that span.

In the commodities complex, crude oil gained 29 cents a barrel, or 0.31%, to $92.48. Gold climbed $9.40 a troy ounce, or 0.53%, to $1,780.50 -- its highest settle since February 28.

Corporate Movers

3M (MMM) inked an $860 million deal to acquire advanced-ceramics maker Ceradyne (CRDN). The $35-a-share transaction carries a 43% premium on Ceradyne's Friday close of $24.43.

BMC Software (BMC) popped about 4% after The Wall Street Journal reported the company has tapped Bank of America Merrill Lynch (BAC) to reach out to potential buyers, including private-equity firms.

Honeywell (HON) acquired a 70% stake in privately held natural gas company Thomas Russell for $525 million in cash.

Macy's (M) announced plans to boost its hiring of seasonal employees by 2.5% to 80,000 workers this holiday-shopping season.

Cal-Maine Foods (CALM) more than tripled its fiscal first-quarter profits to $9.42 million as sales jumped 12% to $272.9 million. The egg producer warned it expects near record high feed costs due to the summer drought to continue.

Global Markets

The Euro Stoxx 50 soared 1.82% to 2498.81, London’s FTSE 100 advanced 1.37% to 5820.45 and the German DAX climbed 1.53% to 7326.73.